Vacancy on the rise.
Orlando retail vacancy will rise again in 2010, partly as a result of significant blocks of vacant space in properties built during the past few years. While slumping demand has affected all vintages of assets, the vacancy rate in shopping centers constructed since 2007 topped 20 percent last year, much more than the marketwide rate for all properties.
Continuing softness in the job market will reduce store visits and suppress spending, further influencing spacial demand and limiting the number of tenants available to fill new shopping centers. Additions to supply will not be a major factor this year, however, as completions will fall to the lowest annual level in at least 30 years. Housing starts, typically a precursor of retail property development, declined for four consecutive years through the end of 2009. Home building will likely remain depressed in 2010 while the economy continues to stabilize, thereby deterring retail developers.
Following a year in which 39,400 jobs were eliminated, employers in Orlando will trim 1,000 positions this year, a 0.1 percent decrease. Completions will drop from 900,000 square feet in 2009 to 300,000 square feet this year. Falling rents and rising vacancy will force the delays of some developments currently in the planning pipeline. As a result, low construction levels may persist for a few years. Despite a sharp decline in completions, vacancy will rise 130 basis points in 2010 to 12.4 percent. Owners of recently built properties with high vacancy rates will continue to struggle to fill vacant spaces. This year, asking rents will tumble 3.1 percent to $16.82 per square foot, while effective rents will slide 5.2 percent to $14.04 per square foot.
Multi-tenant property investors will wait on the sidelines a while longer in anticipation of deeply discounted, lender-owned assets coming to market. To date, banks have extended loans, and few of these properties have been listed, while the pool of prospective buyers has increased. With strong competition expected for lender-owned multi-tenant assets, some investors may want to look for properties not facing imminent debt maturities or assets not significantly affected by the loss of key tenants. Some of the near-term challenges for these investors, though, include projecting how far rents will fall before a rebound in demand and convincing owners to accept a bid based on that figure. At the end of last year, average marketwide effective rents slipped to levels last recorded in 2005, and additional declines are expected in 2010.
— Richard Matricaria is the regional manager of the Orlando office of Marcus & Millichap.